Partly allowed

Imc Ltd. v. Ineos Abs (India) Ltd.

Bombay HC24 Sept 2012ARBP/170/2012

Case brief

AI extract

What is this about?

Court allowed partial modification of an arbitral award setting aside portions rejecting interest claims contrary to contract terms and Section 31(7)(a) of the Arbitration Act, but refused to enhance claims totally rejected by the tribunal.

What did the court decide?

Set aside portions of the award that rejected interest claims contrary to the contract terms and Section 31(7); refused to grant claims rejected by the arbitral tribunal.

Imc Ltd. Vs Ineos Abs (India) Ltd. — Arbitration | Bombay HC (2012)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO. 170 OF 2012

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IMC Limited ) (erstwhile United Storage & Tank ) Terminals Ltd.) a Company incorporated) under the Companies Act, 1956 and ) having its registered office at 232/A, ) Acharya Jagadish Chandra Bose Road) Kolkata 700 020 ) ..... Petitioner

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Versus

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INEOS ABS (India) Limited ) (erstwhile ABS Industries Limited & ) Bayer ABS Limited) a Company ) incorporated under the Companies Act) 1956 and having its office at ABS Towers) Old Padra Road, Vadodara, Gujarat ) and carrying on business at Kolshet ) Road, Thane 400 607, Maharashtra ) ..... Respondent

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Ms.Fereshete Sethna, a/w. Ms.Anuradha Dutt, Mr.Ram Kakkar, i/b. Duttmenon Dunmorrsett for the Petitioner.

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Mr.Pradip Sancheti, Senior Counsel, Mr.Chakrapani Misra, Mr.Ameya Gokhale, Ms.Nayantara Sanyal, i/b. Khaitan & Co. for the Respondent.

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CORAM : R.D. DHANUKA, J.

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DATE : 24th SEPTEMBER, 2012.

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ORAL JUDGMENT :

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By this Petition under Section 34 of the Arbitration and Conciliation Act, 1996

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(for short ‘The Arbitration Act, 1996’), the Petitioner (Original Claimant) seeks modification of the Award dated 23^rd February, 2011 to the extent that the interest as

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claimed by the Petitioner is not awarded by the Arbitral Tribunal.

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There is no dispute that there was an Arbitration Agreement between the parties and the matter was referred to the Arbitral Tribunal. By an Award dated 23^rd February, 2011 passed by the Arbitral Tribunal, certain claims made by the Petitioners are granted. The dispute raised in the present petition is in respect of the reliefs considered by the Arbitral Tribunal in paragraphs (42) to (44) of the impugned award. The Learned Counsel appearing for both the parties have informed that the Respondents had filed a petition (619 of 2011) challenging the same award allowing certain claims in favour of the Petitioner. By an Order dated 5^th August, 2011 passed by this Court, the said Arbitration Petition has been rejected. The Appeal (610 of 2011) filed by the Respondent has been admitted by the Order dated 22^nd February, 2012. It is common ground that the impugned award challenged therein has not been stayed so far.

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The Learned Counsel appearing for the Petitioner submits as under :-

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(a) Under Clause (3) of the Agreement dated 4^th December, 1996 though the Petitioner was entitled to

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recover interest at the rate of 24% per annum on the principal sum, the Arbitral Tribunal in paragraph (42) of the impugned order has awarded interest at the rate of 10% per annum from the date of the statement of claim till payment and not from the date when the amount was due.

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(b) The claim awarded in paragraph (44) of the impugned order at Rs.34,12,315/- is also not awarded with interest though the contract clause (11) provides for payment of interest at the rate of 22% per annum on the principal sum.

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(c) It is submitted that this part of the Award is contrary to the terms of the contract. The Arbitral Tribunal has not given any reason while rejecting claim for interest though contract provides for payment of interest. It is submitted that this part of the Award be modified and the Petitioner be awarded payment of interest as claimed by the Petitioner.

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On the other hand, the Learned Senior advocate appearing for the respondent submits as under :- (i) There is no prayer for setting aside the impugned award.

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(ii) The reliefs sought by the Petitioner is for modification of the impugned award and to allow claims which have been rejected by the Arbitral Tribunal cannot be granted under Section 34 of the Arbitration Act, 1996.

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(iii) The application made by the Petitioner under Section 33 of the Arbitration Act, 1996 for correction of an alleged computational error has been rejected by a separate order dated 26^th May, 2011 passed the Arbitral Tribunal holding that there was no computational error in the Award and the said Award has not impugned by the Petitioner in the present Petition. This court, therefore, cannot grant any relief in favour of the Petitioner by setting aside the Award or modifying the same.

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(iv) The Appeal filed by the Respondent challenging the impugned award has been admitted. Any order passed by this Court in the present petition would conflict with the final order which may be passed in the appeal filed by the Respondent.

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In so far as objection that in view of therein being no prayer for setting aside the impugned award no part of the award can be set aside is concerned, the perusal of the averments made in the petition and more particularly paragraph (1) , paragraph (43) XII and the grounds of challenge read with prayer (a), it is clear that the Petitioner has claimed relief for setting aside part of the Award. I am, therefore, not inclined to accept this submission made on behalf of the Learned Senior Counsel that there is no relief claimed for setting aside the impugned award. In my view, since petitioner has

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challenged only portion of the award, modification would mean setting aside that portion of the award first and then to be substituted by the relief as claimed by the petitioner.

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In so far as the relief claimed in prayer [a(i)] is concerned, paragraph (42) of the impugned Award directs the Respondent to pay basic operation charges w.e.f. 26^th January, 2001 till 14^th February, 2005 at Rs.8,48,79,561/- with interest at the rate of 10% per annum from the date of the statement of claim till payment.

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Paragraph (42) of the impugned Award reads thus :-

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42. The Claimants are, therefore, entitled to recover from the Respondents as per their Amended Particulars of Claim, basic operating charges with effect from 26^th January 2001 until 14^th February 2005 amounting to Rs. 8,48,79,561/- as per particulars of claim at item A in Exhibit P to the Statement of Claim. The Claimants have claimed interest on this amount at the contractual rate of 24% per annum starting from 30 days after the date of repudiation of the Contract as per Clause 3 of the Agreement. In our view, the claim is in the nature of damages and/or compensation and, as the rate of interest mentioned in the contract, namely 24% per annum appears punitive, a reasonable rate of interest can be granted from the date of the statement of claim. Interest is granted on this amount @ 10% per annum from the date of the statement of claim till payment.

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The Petitioner has placed reliance on Clause (3) of the Contract which reads

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thus :-

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3. In case PARTY wish to terminate the agreement before the expiry of initial period of agreement, PARTY agree to pay the COMPANY the Basic Operating Charges upto the end of the initial period of the

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agreement. Such payments shall be made within 30 days from the date of termination, failing which PARTY is liable to pay interest at the rate of 24% per annum.

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On perusal of Clause (3), it is clear that it obligates payment of interest at the rate of 24% per annum in the event of non-payment of basic operating charges upto the end of the initial period of Agreement from the date of termination.

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Perusal of the Award indicates that the Arbitral Tribunal has not given any reason as to why the Petitioner is not entitled to claim interest at the contractual rate of 24% per annum from the date of the termination. The Award also does not indicate as to why the Arbitral Tribunal has come to the conclusion that the interest at the rate of 10% should be awarded on 10^th September 2003 and not from the date of termination of the contract. Arbitral Tribunal could not construe the term ‘interest’ in the nature of damages and/or compensation atleast from the due date till date of award.

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In so far as the relief claimed in paragraph 8(a) (ii) is concerned, in paragraphs (43) and (44) of the impugned Award, the Arbitral Tribunal has recorded a finding based on the fact that the Respondent in their counter claim had accepted the claim of Rs.16,80,000/- under first and second invoice each. The Arbitral Tribunal has also allowed a claim of Rs.52,315/- after considering the evidence lead by the parties. However, in the operative part of the paragraph (44) of the impugned Award, the Arbitral Tribunal has not awarded any interest though it was found that the amount was due to the Petitioner from the Respondent. In paragraph (44) of the impugned Award, the Arbitral Tribunal had directed that the amount totaling to Rs.34,12,315/- payable to the Petitioner by the Respondent shall be adjusted against the interest free deposit of

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Rs.51 lacs which the Petitioner was liable to return to the Respondent. Though it is held that the Petitioner is entitled to the principal amount of Rs.34,12,315/-, no interest has been awarded. Paragraph (44) of the impugned Award reads thus :-

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44. The said amounts totalling Rs.34,12,315/- shall be paid by the Respondents to the Claimants. These amounts may be adjusted by the Claimants against the interest-free deposit of Rs.51 lacs which the Claimants are liable to return to the Respondents. Any balance remaining in the hands of the Claimants shall be returned by the Claimants to the Respondents. In case of any part of the amount remaining payable after such adjustment, the same shall be paid by the Respondents to the Claimants together with interest thereon @ 10% per annum from the date of the statement of claim till payment. The counter claim of the respondents for the return of the deposit of Rs.51 lacs is allowed as aforesaid.

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The Petitioner placed reliance on Clause (11) of the Contract which reads as under :-

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11. PARTY shall pay to COMPANY the monthly Basic Operating Charges in advance by the seventh of every month. The other service charges shall be payable within 10 days of receipt of COMPANY’s invoice. COMPANY reserves the right to withhold delivery of the product stored, after giving a minimum of seven days notice, if the bills raised by COMPANY remain unsettled for more than two months at any time during the currency of the agreement. Interest @ 22% per annum for the first three years and 21% per annum for the subsequent years, is payable by PARTY, if bills are not settled in full within 10 days of receipt.

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It is clear that Clause (11) provides for interest at the rate mentioned therein.

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Clause (44) of the Impugned Award indicates that the Arbitral Tribunal has not

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given any reason as to why no interest is awarded though the principal amount is found due though contract Clause (11) provides payment of interest in the case of failure to pay by the respondents.

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Section 31(7)(a) of the Arbitration Act, 1996 reads thus :-

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31 (7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

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From the perusal of the Clauses (3) and (11) referred supra, it is clear that it was an agreement that in case of default in making payment by the Respondent, the Petitioner was entitled to get interest. In my view, the Arbitral Tribunal was bound to decide in accordance with law and the provisions of Contract. In the case of State of

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Haryana vs. S.L.Arora & Co.¹ , the Supreme Court has considered Section 31(7) (a) of Arbitration Act, 1996. The relevant paragraph reads thus :-

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As there is some confusion as to what Section 31(7) authorizes and what it does not authorize, we will attempt to set out the legal position regarding award of interest by the arbitral tribunals, as emerging from Section 31(7) of the Act.

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18.1) The provision for interest in the Act is contained in Section 31 dealing with the form and contents of arbitral award. It employs two significant expressions "where the arbitral award is for payment of money" and "the arbitral tribunal may include in the sum for which the award is made , interest.... on the whole or any part of the money".

1 AIR 2010 SC 1511

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The legislature has thus made it clear that award of interest under Sub-section (7) of Section 31 (and award of costs under Sub-section (8) of Section 31 of the Act) are ancillary matters to be provided for by the award, when the arbitral tribunal decides the substantive disputes between the parties. The words 'sum for which the award is made' and 'a sum directed to be paid by an arbitral award' contextually refer to award on the substantive claims and not ancillary or consequential directions relating to interest and costs.

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18.2) The authority of the arbitral tribunals to award interest under Section 31(7)(a) is subject to the contract between the parties and the contract will prevail over the provisions of Section 31(7)(a) of the Act. Where the contract between the parties contains a provision relating to, or regulating or prohibiting interest, the entitlement of a party to the contract to interest for the period between the date on which the cause of action arose and the date on which the award is made, will be governed by the provisions of the contract, and the arbitral tribunal will have to grant or refuse interest, strictly in accordance with the contract. The arbitral tribunals cannot ignore the contract between the parties, while dealing with or awarding pre-award interest. Where the contract does not prohibit award of interest, and where the arbitral award is for payment of money, the arbitral tribunal can award interest in accordance with Section 31(7)(a) of the Act, subject to any term regarding interest in the contract.

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18.3) If the contract provides for compounding of interest, or provides for payment of interest upon interest, or provides for interest payable on the principal upto any specified stage/s being treated as part of principal for the purpose of charging of interest during any subsequent period, the arbitral tribunal will have to give effect to it. But when the award is challenged under Section 34 of the Act, if the court finds that the interest awarded is in conflict with, or violating the public policy of India, it may set aside that part of the award.

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18.4) Where an arbitral tribunal awards interest under Section 31(7)(a) of the Act, it is given discretion in three areas to do justice between the parties. First is in regard to rate of interest. The Tribunal can award interest at such rate as it deems reasonable. The second is with reference to the amount on which the interest is to be awarded. Interest may be awarded on the whole or any part of the amount awarded. The third is with reference to the period for which the interest is to be awarded. Interest may be awarded for the whole or any part of the period between the date on which cause of action arose and the date on which the

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award is made.

18.5) The Act does away with the distinction and differentiation among the four interest bearing periods, that is, pre-reference period, pendente lite period, post-award period and post-decree period. Though a dividing line has been maintained between pre-award and post-award periods, the interest bearing period can now be a single continuous period the outer limits being the date on which the cause of action arose and the date of payment, subject however to the discretion of the arbitral tribunal to restrict the interest to such period as it deems fit.

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18.6) Clause (b) of Section 31(7) is intended to ensure prompt payment by the award-debtor once the award is made. The said clause provides that the "sum directed to be paid by an arbitral award" shall carry interest at the rate of 18% per annum from the date of award to the date of payment if the award does not provide otherwise in regard to. the interest from the date of the award. This makes it clear that if the award grants interest at a specified rate up to the date of payment, or specifies the rate of interest payable from the date of award till date of payment, or if the award specifically refused interest, Clause (b) of Section 31 will not come into play. But if the award is silent in regard to the interest from the date of award, or does not specify the rate of interest from the date of award, then the party in whose favour an award for money has been made, will be entitled to interest at 18% per annum from the date of award. He may claim the said amount in execution even though there is no reference to any post award interest in the award. Even if the pre-award interest is at much lower rate, if the award is silent in regard to post-award interest, the claimant will be entitled to postaward interest at the higher rate of 18% per annum. The higher rate of interest is provided in Clause (b) with the deliberate intent of discouraging award-debtors from adopting dilatory tactics and to persuade them to comply with the award.

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It is common ground that there is no prohibition under the contract for payment of interest. On the contrary, the contract provides for payment of interest. From the perusal of the Award, it is clear that the Arbitral Tribunal has not given any reason as to why the Petitioner was not entitled to be awarded interest though there was a provision in the contract for the same. In my opinion, the Tribunal has acted contrary

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to the terms of the contract while dealing with claim of interest and thus this portion of the award is in conflict with public policy and deserves to be set aside.

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In so far as the relief claimed by the Petitioner for enhancement or grant of claim of interest not awarded by the Arbitral Tribunal is concerned, in my opinion, no such relief can be granted to the Petitioner. In case of Mcdermott International Inc.

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vs. Burn Standard Co. Ltd. & Ors.² in paragraph (52) , it has been held by the Supreme Court that the court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired.

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In my opinion, under Section 34 of the Arbitration Act, 1996, the court has no power to grant any relief which has been rejected by the Arbitral Tribunal. The Court also has no power to enhance the claim which is rejected by the Arbitral Tribunal. In view thereof, I am not inclined to award claim or enhance claim which are rejected by the Arbitral Tribunal. However, since portion of the impugned Award is in conflict with public policy, the parties are free to begin the arbitration again if it is desired.

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In my view rejection of application made under Section 33 of the Arbitration Act, 1996 by the Arbitral Tribunal and the petitioner not impugning the same in this petition is of no significance in the facts of this case.

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It is common ground that petition filed by the respondent challenging the same award has been rejected by this Court. Though appeal has been admitted, award has

2 (2006) 11 SCC 181

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not been stayed. I am therefore inclined to consider the relief claimed in this petition.

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In the result paragraphs (42) and (44) of the impugned award in so far as it rejects the claim for interest as claimed by the Petitioner and were permissible under clauses 3 and 11 read with Section 31 (7) of the Arbitration Act, 1996 are set aside. It is made clear that claim for interest awarded by the arbitral tribunal is not set aside by

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this order. Petition succeeds partly.

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There shall be no order as to costs.

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(R.D. DHANUKA, J.)

Imc Ltd. v. Ineos Abs (India) Ltd.

Case brief

What is this about?

What did the court decide?

Imc Ltd. v. Ineos Abs (India) Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

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